Ace Leasing acquires equipment and leases it to customers under long-term sales-

Question

Ace Leasing acquires equipment and leases it to customers under long-term sales-type leases. Ace earns interest under these arrangements at a 6% annual rate. Ace leased a machine it purchased for $790,000 under an arrangementthat specified annual payments beginning at the commencement of the lease for five years. The lessee had the option to purchase the machine at the end of the lease term for $200,000 when it was expected to have a residual value of $350,000. (FV of $1, PV of $1, FVA of $1. PVA of $1 FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Calculate the amount of the annual lease payments. Purchase Option Table or calculator function ns Present Value Amount to be recovered (fair value) Purchase option Amount to be recovered through periodic lease payments Lease Payment Table or calculator function: ns Lease Payments Amount of fair value recovered each lease payment

Explanation / Answer

n=5
i=6%
amount to be reocvered=790000
purchase option=350000
amount to be recovered=390000
lease payment:
n=5
i=6%
lease payment=125454

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